How to make an offer and negotiate?

Question

Hello, we are in the process of pherchasing our first property( Hopely) Seller is a bit motivated to sell and we want to do short term rental.

when you submitting offer how do you guys calculate? We want to make sure if we can cash flow.

what kinds of things you guys consider when you do numbers?

Also any good tips to negotiate the price?

thank you.

Alice Horn · Answer

@Sejin Kim remember that in most Florida markets, one bedroom condos will compete directly with hotel rooms. Before you make this purchase, research daily rates and occupancy carefully on nearby similar condos (on Airbnb, Vrbo, etc.). If you see really low rates, that likely means your investment will struggle to make money, and will also be difficult to sell in the future. Feel free to reach out if you would like to discuss!

Joe Villeneuve · Answer

Calculate maximum MP: Rent - expenses - needed CF = Maximum MP.Use any free online mortgage calculator: Fill in Asking Price, enter 20% for the DP, current interest rate, 30 years for term, and you will get your MP. If this MP is lower than the Calculated Maximum MP, the AP is too high, lower the Offer (asking Price) until the MP is equal to or less than the Maximum AP.

Sejin Kim · Answer

Thank you. :) 😀

Joe Villeneuve · Answer

I never want to go higher than 20%...which is pretty standard. The least amount of cash you put in is very important. It's your cash, and ONLY your cash, that defines what that property costs you. Less is best.

Theresa Harris · Answer

What does your realtor say? Someone who works in that market is going to be in a better position to answer your questions about resale as well as fair market value.

Shawn McCormick · Answer

@Sejin Kim Need more information. Are you financing? Is the home located in a community/city/HOA that allows the property to be used as an STR? Sellers motivation shouldn't factor in what you can afford, thats a bonus if they will negotiate, but your numbers have to make sense to you and work out for multiple exit strategies (str, ltr, sell etc)Running the purchase numbers is pretty straightforward, use almost any online mortgage calculator, make sure you know taxes and insurance (taxes will go up a bit if it is currently owner occupied and you don't plan to live in it) Once you know your mortgage amount then start looking at other STR's in the same area and same size/amenities and see what they are getting per night and how many nights a month they are rented to calculate what you MAY be able to get. Take that number and subtract your mortgage and that will give you gross revenue. You still have utilities, HOA, replacements, sundries, pool cleaning, property management etc. Hopefully this help a bit. I'm in Orlando too if you want to reach out. Best of luck!

Leonardo Chandler · Answer

When I calculate an offer on a property, I typically look at the potential rental income and subtract from that all operating expenses such as taxes, insurance, management and maintenance. When it comes to negotiating a price, it helps to have information about the market value of similar properties and be prepared to negotiate.

Alyson Gordon · Answer

There are many free calculators out there from those that do this professionally. I use one from STR Secrets https://www.skool.com/str-secrets-starter-pack/about and would also suggest checking out the one from Tony J Robinson https://alphageekcapital.com/Calculator/. Buy slowly after you have all of the info so you don't have regret! :)

Shawn McCormick · Answer

Okay, that sounds good. If you need help or don't have an agent yet. I am happy to assist, I've helped many other Bigger Pockets members purchase and know those communities very well.

Sejin Kim · Answer

Thanks! we are going to use family fund. And we will pay 5% interest rate so which gives us we can make better offer. because of house being increased and high interest rate, we are calculating CF from STR. With long term rental, we can't make any CF. So our exit strategy is only STR or Mid term rental and selling later. Property we want to phachase is in Kissimmee. So STR allowed and close to disney.We live in CA and we go to Orlado quiet often so we thought buying investment property in Florida is good idea. luckily property we saw doesn't need a lot of repairs when we saw it. Just cosmetic repair in kitchen cabinet. HoA maintain amenities and outside area of property well which we liked. Just when we calculated ROI, it doesnt seem make good number , but if our goal is only cash flow , then with STR we will be making little bit of CF. does it make sense? Sorry about my English. I am immigrant ;) Thank you so much for your comment.